Macmillan will end e-book discounting ban in price-fixing settlement

The company that publishes books under the Macmillan imprint has agreed to allow discounting of its electronic books as part of a settlement with the U.S. Department of Justice over price-fixing in the fast-growing e-book market.

Under the terms of the proposed settlement, Holtzbrinck Publishers will immediately lift discounting restrictions and will be prohibited from entering into new agreements with similar restrictions until December 2014, the Department of Justice said Friday.

The settlement also requires Macmillan to provide advance notification to the Justice Department of any e-book ventures it plans to undertake jointly with other publishers and regularly report to the department on any communications it has with other publishers. The company will also be banned for five years from entering any "most favored nation" provision that could undermine the effectiveness of the settlement, the DOJ said.

Background

The settlement is the latest reached by the Department of Justice as part of a price-fixing investigation into Apple's electronic books store that was launched in April 2012. The company previously settled with Hachette Book Group, HarperCollins Publishers, Penguin Group, and Simon & Schuster.

"Just as consumers are already paying lower prices for the e-book versions of many of Hachette's, HarperCollins' and Simon & Schuster's new releases and best sellers, we expect the prices of many of Macmillan's e-books will also decline," said Jamillia Ferris, chief of staff and counsel at the Department of Justice's Antitrust Division, in a statement.

The roots of the case lie with publisher dissatisfaction over Amazon.com's aggressive discounting tactics. The companies conspired to stop "the $9.99 problem," according to court filings. Apple's entry into the e-book market was seen as the perfect opportunity to do that.

Working together, Apple and the publishers sought to establish a new agency model where the publishers would set the sale price and Apple would take a commission on each sale. Apple would be able to turn a profit of around 30 percent on each book sold, which was far in excess of the industry norm at the time, while the publishers would gain more control over prices, according to a court filing.

As part of its agreement, Apple said the publishers would have to force such a model on competitors selling e-books, later changing this to make Apple the favored partner of the publishers.

The deal "protected Apple from price competition from other retailers, guaranteeing that its 30-percent margin would not be disturbed," the filing said.

"Apple CEO Steve Jobs explained to one publisher defendant that the Apple Agency Agreements provided a path for the publisher defendants away from $9.99 and to higher retail e-book prices. He urged the publisher defendants to "[t]hrow in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99," according to the filing.

The proposed settlement will be open to a 60-day public comment period after which a final judgment in the case is expected.

The Department of Justice trial against Apple is scheduled to begin in June 2013.